(Test Bank) Financial Accounting Information For Decisions

Wild, 10

Business

Test Bank

10th Edition

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Test Bank for Financial Accounting Information For Decisions, The downloadable file consists of 1697 pages, and the total size of the file is 7.93 MB. Purchase now only for highly discounted price.

Author(s): Wild

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Study Note Preview

Version 1 1 Chapter 1 (a) FILL IN THE BLANK. Write the word or phrase that best completes each statement or answers the question. 1) __________________ is an information and measurement system that identifies, records and communicates an organization ’s business activities. 2) A ____________________ is a business that is owned by only one person and has unlimited liability. 3) ______________ users of accounting informati on do not directly run an organization and have limited access to its accounting information. 4) ______________ is the area of accounting that focuses on the needs of external users by providing them with general -purpose financial statements. 5) ______________________ are procedures to protect assets, ensure reliable accounting, promote efficiency, and uphold company policies. 6) _________ are beliefs that separate right from wrong and are considered accepted standards of good and bad behavior. 7) The assumption that requires that a business be accounted for separately from other business entities and its owner(s) is the __________________ assumption. 8) The ______________ assumption assumes that a business will continue operating instead of being closed or sold.Version 1 2 9) The ________________ assumption states that transactions and events are expressed in monetary, or money, units. 10) The principle that requires th at accounting information be based on actual cost is the ______________________________. 11) A disadvantage of a sole proprietorship is the fact that the owner has ______________. 12) There are three sections of the statement of c ash flows. ________________ activities involve the long -term borrowing and repaying of cash from lenders. 13) There are three sections of the statement of cash flows. ________________ activities involve buying and selling assets such as land and equipment that are held for long -term use. 14) There are three sections of the statement of cash flows. ______________ activities include payments for salaries, insurance, and rent. 15) Outflows of cash and other assets t o owners that reduce equity are ____________. 16) ____________ are the increases in equity from a company ’s sales of products and services to customers. 17) A common characteristic of __________ is the expectation that they will y ield future benefits.Version 1 3 18) Creditors’ claims on assets that reflect company obligations to provide assets, products, or services to others are called ____________________. 19) The stockholders ’ claim on assets, also known as net as sets, is called __________________. 20) The accounting equation is ______________________________. 21) The term ___________ refers to a liability that promises a future outflow of resources. 22) Using the accounting equation, equity is equal to ________________________. 23) ______________________ is the recording of transactions and events. 24) _________________ is net income divided by average total assets. 25) Retur n on assets is_________________ divided by average total assets. 26) ________________________________ reports changes in the stockholders ’ claim on the business’s assets from net income or loss and dividends over a period of time. 27) The ____________________ describes a company ’s revenues and expenses along with the resulting net income or net loss over a period of time due to earnings activities.Version 1 4 SHORT ANSWER. Write the word or phrase that best completes each sta tement or answers the question. 28) Explain the role of accounting in the information age. 29) What is the balance sheet? What is its purpose? 30) Identify the users and uses of accounting information. 31) Identify several opportunities in accounting and distinguish between private accounting and public accounting. 32) Explain why ethics are an integral part of accounting. 33) Describe the two important guidelines for revenue recognition.Version 1 5 34) Identify the four basic forms of business organizations and their key attributes. 35) Identify and describe the two main groups involved in establishing generally accepted accounting principles. 36) How does the going -concern principle affect reporting asset values of a business? 37) Describe the income statement and the relation between revenues, expenses, and net income or loss. 38) Explain the accounting equation and define its terms. Version 1 6 39) What distinguishes liabilities from equity? 40) What is the purpose of return on assets as an analytical tool? 41) Explain the cost -benefit constraint. 42) Describe the three types of activities reported on the statement of cash flows. 43) Identify and describe the four basic financial statements: Version 1 7 ESSAY. Write your answer in the space provided or on a separate sheet of paper. 44) The characteristics below apply to at least one of the forms of business organization. a. Is a separate legal entity. b. Is allowed to be owned by one person only. c. Owner or owners are personally liable for debts of the business. d. Is subject to an additional business income tax. e. Has an unlimited life Use the following format to indicate (with a “yes” or “no”) whether or not a characteristic applies to each type of business organization. Proprietorship Partnership Corporation LLC a. b. c. d. e. 45) A parcel of land is offered for sale at $600,000, is recognized by its purchasers as easily being worth $575,000 and is sold for $570,000. At what amount should the land be recorded in the purchaser ’s books? What accounting principle supports your answer? Version 1 8 46) You are reviewing the accounting records of Buddy ’s Foreign Automotive, owned by a Bruce Jones. You have uncovered the following situatio ns. List the appropriate accounting principle or assumption related to each independent scenario and suggest a correct action for each. 1. In August, a check for $500 was written to Community Sports. This amount represents soccer camp for his daugh ter Cassie. 2. Bruce plans a Going Out of Business Sale for June, since he will be closing the business for a month -long vacation in July. He plans to reopen August 1 and will continue operating Buddy ’s Foreign Automotive indefinitely. 3. Buddy rec eived a shipment of tools from Ontario, Canada. The invoice was stated in Canadian dollars. 4. Customer Sandy Lane paid $1,500 to Buddy for a major repair services. The amount was recorded by Buddy as revenue. The parts for the repair must be ordered f rom overseas and the service won ’t be complete until the following month. 47) At the beginning of the year, a company had $120,000 worth of liabilities. During the year, assets increased by $160,000 and at year -end they equaled $360 ,000. Liabilities decreased $20,000 during the year. Calculate the beginning and ending values of equity. 48) At the beginning of the period, a company had $350,000 worth of assets, $110,000 worth of liabilities, and $240,000 worth of equity. Assume the only change during the period was a $30,000 purchase of equipment by issuing a note payable. Show the accounting equation with the appropriate amounts at the end of the period.Version 1 9 49) The accounts of Odie Company had the following increases and decreases during the past year: Account Increase Decrease Cash $ 25,000 Accounts receivable $ (5,000) Accounts payable (11,000) Notes payable 16,000 Except for net income, an investment of $3,000 by stockholders, and a cash dividend of $11,000 to stockholders, no other items affected stockholders ’ equity. Using the balance sheet equation, compute net income for the past year. 50) The accounts of Mason Company at the end of the past year report the following amounts: Accounts Amount Dividends $ 15,500 Revenues $ 97,000 Expenses $ 43,800 Stock issuances 2,000 If the beginning equity for the year was $173,000, calculate the ending equity for Mason Company.Version 1 10 51) Cornelia’s Closet has the following assets and liabilities for the dates given: October 1 October 31 Cash $ 40,000 $ 60,000 Accounts Receivable 40,000 38,000 Accounts Payable 6,000 ? Also, its net income, for October 1 through October 31 was $20,000 and there were no stock issuances or dividends. Determine the equity at both October 1 and October 31. 52) If the liabilities of a company increased $92,000 during a period of time and equity in the business decreased $30,000 during the same period, did the assets of the company increase or decrease? By what amount? 53) Soo Lin, the sole owner, began Internet Consulting and completed these tr ansactions during April of the current year: April 1 Invested $100,000 of her personal savings into a checking account opened in the name of the business in exchange for common stock. April 2 Rented office space and paid $1,200 cash for the month of September. Version 1 11 April 3 Purchased office equipment for $30,000, paying $8,000 cash and agreeing to pay the balance in one year. April 4 Purchased office supplies for $750 cash. April 8 Completed work for a client and immediately collected $2,700 cash for the services. April 15 Completed $3,600 services for a client on credit. April 20 Received $3,600 from a client for the work completed on September 15. April 30 Paid the office secretary’s monthly salary, $3,000 cash. April 30 The company paid $2,000 in cash dividends to Lin. Show the effects of the above transactions on the components of the accounting equation. Use the following format for your answers. The first item is shown as an example. Increase = I Decrease = D No effect = N Date Assets Liabilities Equity Example: April 1 I N I Version 1 12 54) For each of the following transactions, identify the effects as reflected in the accounting equation. Use “+” to indicate an increase and “−” to indicate a decrease. Use “A”, “L”, and “E” to indicate assets, liabilities, and equity, respectively. Part A ha s been completed as an example. a. L. Chester invested $100,000 in a corporation in exchange for common stock. +A +E b. Land was purchased for $50,000. A down payment of $15,000 cash was made and a note was signed for the balance. c. Services were rendered to customers for cash. d. A building was purchased for cash. e. Supplies were purchased for cash. f. Paid the office secretary’s salary. g. The amount owed on the land from Part (b) was paid. 55) The following schedule reflects shows the first month ’s transactions of the Green Construction Company, owned by Jennifer Green, its sole stockholder: Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Stockholder’s Equity 1. +20,000 +20,000 2. −5,000 +5,000 3. +$1,500 +1,500 4. +3,000 +3,000 5. +1,000 +1,500 +2,500 6. −750 −750 7. +500 −500 8. −1,200 +1,200 Version 1 13 9. −2,000 −2,000 Provide descriptions for each transaction. 56) The accountant of Action Adventure Games prepared a balance sheet after every 10 -day period. The only resources invested by the stockholder were at the start of the company on June 1. During June, the first month of operation, the following balance sheets were prepared: ACTION ADVENTURE GAMES Balance Sheet June 10 Assets Equity Cash $ 60,000 Common stock $ 60,000 Total assets $ 60,000 Total liabilities and equity $ 60,000 ACTION ADVENTURE GAMES Balance Sheet June 20 Assets Liabilities Cash $ 48,000 Notes payable $ 18,000 Land 10,000 Equity Building 20,000 Common stock 60,000 Total assets $ 78,000 Total liabilities and equity $ 78,000 ACTION ADVENTURE GAMES Balance Sheet June 30 Assets Liabilities Cash $ 51,000 Accounts payable $ 2,000 Office supplies 2,000 Notes payable 18,000 Land 10,000 Equity Building 20,000 Common stock 60,000 Version 1 14 Retained earnings 3,000 Total assets $ 83,000 Total liabilities and equity $ 83,000 Required: Describe the nature of each of the four transactions that took place between the balance sheet dates shown. Assume only one transaction affected each account. June 10 ______________________________________________ June 20 _____________________ _________________________ June 30 ______________________________________________ 57) Compute the return on assets (ROA) for each of the following separate examples. a. Net income equals $5,000; Average total assets equals $25,000. b. Net income equals $1,200; Average total assets equals $12,000. c. Net income equals $8,000; Average total assets equals $160,000. 58) Prepare an April 30 balance sheet in proper form for Two Rivers Vending Service from the following alphabetical list of the accounts at April 30: Accounts receivable $ 10,000 Accounts payable 18,000 Building 28,000 Cash 10,000 Common Stock 20,000 Notes payable 47,000 Office equipment 12,000 Retained earnings ? Trucks 55,000 Version 1 15 59) Prepare a December 31 balance sheet in proper form for Smokey River Supplies from the following list of the accounts: Cash $ 10,000 Accounts receivable 8,000 Supplies 12,000 Equipment 35,000 Land 18,000 Accounts payable 13,000 Notes payable 41,000 Common stock 20,000 Retained earnings 9,000 60) Prepare a December 31 balance sheet in proper form for Cane Property Management using the following accounts and amounts (some accounts may not be used): Commissions earned $ 40,000 Accounts payable 3,500 Accounts receivable 5,000 Common stock 60,000 Retained earnings 44,500 Office equipment 10,000 Advertising expense 3,200 Cash 7,500 Land 35,000 Notes payable 50,000 Office supplies 1,500 Salaries expense 12,000 Salaries payable 1,000